UK: Corporate criminal liability – reforming the Identification Doctrine

Subsequently, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) has made two significant reforms in this area. First, ECCTA introduced a new corporate criminal offence of failing to prevent fraud (and related offences), which is expected to enter into force during 2024. Secondly, section 196 of ECCTA creates a statutory route to attribute criminal liability to a corporate where a ‘senior manager’ of that corporate commits a (specified) economic offence whilst acting with the actual or apparent authority of that same corporate. 

This second reform is significant: it has substantially widened, and also codified, the longstanding common law ‘identification doctrine’. Under that doctrine, a company can only be held criminally liable in common law if it can be proven that the “directing mind and will” of the company committed the offence. This has meant that it has been sometimes difficult to prosecute corporates for economic crime, particularly in cases involving complex organisations with complicated decision making processes.

This second reform came into force on 26 December 2023. 

Key questions

What is a ‘senior manager’?

A corporate or partnership will be guilty of an offence where a senior manager acting within the actual or apparent scope of their authority commits a relevant economic crime offence (specified in Schedule 12 to ECCTA). A ‘senior manager’ means an individual “who plays a significant role” in:

• the making of “decisions about how the whole or a substantial part of the activities” of the organisation are to be managed or organised, or
• the “actual managing or organising of the whole or a substantial part of those activities”

What will ‘senior manager’ actually mean in practice?

Whether an individual is a ‘senior manager’ for the purposes of the legislation will be determined by what they actually do in practice and not by the title or specific job role which the individual holds. It appears clear that a ‘senior manager’ does not necessarily need to be an employee of an organisation, and could be a consultant, officer or other third party meeting this criteria. 

The Government Impact Assessment for ECCTA states that this model ‘will look at what the senior manager’s roles and responsibilities are within the organisation – the level of managerial influence they may exert – rather than their job title’.  

The concept of ‘senior manager’ has been drawn from the Corporate Manslaughter and Corporate Homicide Act 2007 (CMCHA). However, it is used in a different way under ECCTA. Under ECCTA, the ‘senior manager’ needs to have committed the offence for the corporate to be found guilty. By contrast, under the CMCHA, a corporate is guilty where senior management caused a substantial part of the breach.

A key point for entities in the financial services sector to bear in mind will be that the definition of ‘senior manager’ for the purposes of the changes to corporate criminal liability differs substantially from the definition to which firms will be accustomed under the Senior Managers and Certification Regime. The former will cover a much larger population of individuals than the latter, which, although it uses the same nomenclature, is designed to cover only those individuals with ultimate responsibility for decision making in particular areas within firms.

Which organisations will be covered by these changes to corporate criminal liability?

The changes to corporate criminal liability introduced under section 196 of ECCTA will apply to virtually all body corporates and partnerships, whether incorporated or formed within or outside the UK. Unlike the section 199 ECCTA offence (failure to prevent fraud), this new rule of attribution under section 196 is not limited to organisations meeting certain size or turnover criteria; it also applies across all sectors.

Which economic crimes fall within scope of the changes to corporate criminal liability?

Section 196 of ECCTA sets out the way in which an organisation may be held criminally liable where a senior manager commits a ‘relevant offence’. These economic crime offences are defined as those listed in Schedule 12 to ECCTA. The list is extensive (and longer than the list that will apply for the purposes of determining if an organisation has committed the separate new offence of failing to prevent fraud under section 199 of ECCTA). For example, it includes (but is not limited to):

• cheating the public revenue
• offences under the:
  • Theft Act 1968, including theft and false accounting
  • Fraud Act 2006, including fraud
  • Bribery Act 2010, including bribing and being bribed
  • Financial Services and Markets Act 2000, including misleading the FCA or PRA
  • Terrorism Act 2000, including fund-raising
  • Proceeds of Crime Act 2002, including concealing, facilitating, using criminal property and tipping-off
  • Companies Act 2006, including financial assistance and fraudulent trading
  • Financial Services Act 2012, including misleading statements and impressions
  • Regulations pursuant to ss1 and 49 of the Sanctions and Anti-Money Laundering Act 2018

It is notable that Schedule 12 to ECCTA includes the offence of being bribed (i.e. receiving a bribe) under section 2 of the Bribery Act 2010. Under section 7 of the Bribery Act 2010, the corporate (strict liability) offence of failure to prevent bribery is triggered by the offer or payment of bribes rather than their receipt. Therefore, section 196 ECCTA now exposes organisations to corporate criminal liability where one of their senior managers receives a bribe. Any organisation facing indictment in those circumstances would be well-advised to examine whether that senior manager was “acting within the actual or apparent scope of their authority” at the time of receiving the bribe.

In addition to the offences listed within Schedule 12 ECCTA, a ‘relevant offence’ includes an attempt, conspiracy, aiding, abetting, counselling or procuring the commission of a listed offence.

Why is the reform limited to economic crimes only?

Currently, this reform applies only to the listed economic crime offences. However, further reform has been proposed to extend the scope of s196 ECCTA to all criminal offences by a senior manager. This is currently passing through Parliament within the Criminal Justice Bill 2023, and is likely to face particular scrutiny in the House of Lords.

What are the key takeaway points?

Organisations should consider which individuals may be carrying out roles which meet the ‘senior manager’ criteria and put measures in place to minimise risk.

Organisations should bolster their existing financial crime policies and training programmes to ensure that individuals are aware of all of the relevant offences (and there are many more than bribery and fraud), through stricter due diligence at the recruitment/contracting stage, as well as ongoing monitoring and management of misconduct. For example, training should expressly and emphatically describe what is and what is not within the senior manager’s “actual or apparent authority”; ambiguity will increase liability.

Given that the offence is already in force, it may be timely for organisations to revisit their whistleblowing policies, procedures and processes to allow for early investigation of any concerns.

Organisations need to be aware that, unlike the strict liability offences under the Bribery Act 2010 and section 199 ECCTA, there is no statutory defence of having ‘adequate procedures’ or ‘reasonable procedures’ in place vis-à-vis section 196 of ECCTA.

There will be a burden on the prosecution to prove that the individual who committed the offence meets the ‘senior manager’ criteria and committed the relevant offence. 

This article was written by Anupreet Amole, Deborah Williams and Chris Stott